SMITH BARNEY MANAGED GOVERNMENTS FUND INC.
(the "Fund")
Supplement to Prospectus
dated November 27, 1996
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The following supplements the information contained in the Fund's
Prospectus under the section entitled, "Investment Objective and Management
Policies:"
Zero Coupon Securities. The Fund may invest in zero coupon bonds. A
zero coupon bond pays no interest in cash to its holder during its life,
although interest is accrued during that period. Its value to an investor
consists of the difference between its face value at the time of maturity and
the price for which it was acquired, which is generally at significantly less
than its face value (sometimes referred to as a "deep discount" price).
Because such securities usually trade at a deep discount, they will be subject
to greater fluctuations of market value in response to changing interest
rates than debt obligations of comparable maturities which make periodic
distributions of interest. On the other hand, because there are no periodic
interest payments to be reinvested prior to maturity, zero coupon securities
eliminate reinvestment risk and lock in a rate of return to maturity.
Reverse Repurchase Agreements. The Fund may enter into reverse
repurchase agreements. A reverse repurchase agreement involves the sale of a
money market instrument by the Fund and its agreement to repurchase the
instrument at a specified time and price. The Fund will maintain a segregated
account consisting of U.S. government securities or cash or cash equivalents
to cover its obligations under reverse repurchase agreements with broker-
dealers and other financial institutions. The Fund will invest the proceeds in
other money market instruments or repurchase agreements maturing not later
than the expiration of the reverse repurchase agreement. Under the Investment
Company Act of 1940, as amended, reverse repurchase agreements may be
considered borrowing by the seller.
Reverse repurchase agreements create opportunities for increased returns
to the shareholders of the Fund but, at the same time, create special risk
considerations. Although the principal or stated value of such borrowings will
be fixed, the Fund's assets may change in value during the time the borrowing
is outstanding. To the extent the income or other gain derived from
securities purchased with borrowed funds exceed the interest or dividends the
Fund will have to pay in respect thereof, the Fund's net income or other gain
will be greater than if this type of leverage had not been used. Conversely,
if the income or other gain from the incremental assets is not sufficient to
cover this cost, the net income or other gain of the Fund will be less than if
the reverse repurchase agreement had not been used.
The Fund currently intends to invest not more than 33% of its net assets
in reverse repurchase agreements.
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Supplement dated January 28, 1997
FD 01256
